The supply of Ether (ETH) has reached a new low following the significant Shanghai upgrade of the Ethereum network, experiencing a decline of over 309,500 coins since September of the previous year.
Ultra Sound Money data reveals that nearly 1.195 million ETH have been burned since the transition to the Proof of Stake consensus on September 15, 2022. This burn rate has exceeded the new Ether issuance by approximately 30%, as the network issued around 885,000 ETH as staking rewards during the same period.
The current ETH supply is now 56,000 ETH lower than its recent peak, which occurred around October 31, reaching approximately 120.27 million. This data highlights the ongoing impact of network upgrades and the shift to Proof of Stake on the overall supply dynamics of Ethereum.
The decline marks an 18% reduction in Ethereum’s supply since the Shanghai upgrade over the past six weeks.
The recent uptick in burned ETH can be attributed to heightened on-chain trading, largely fueled by the increasing adoption of trading bots. Within the last 30 days, Uniswap transactions have emerged as the leading contributor to burned ETH, constituting roughly 10% of the total ETH destruction.
Significantly, notable public trading bots like Maestro and Banana Gun have secured positions among the top entities burning ETH on the network. Collectively, they have been responsible for burning approximately 9% of the ETH removed from circulation in the past month, underscoring the substantial influence of automated trading in shaping Ethereum’s supply dynamics.
How Shanghai Upgrade Made Ethereum Deflationary?
The Shanghai upgrade, also referred to as The Merge, was designed to transform Ethereum into a deflationary network by replacing Proof of Work miners and restructuring its tokenomics.
This upgrade led to a substantial decrease in new Ether issuance, achieving a deflationary effect through the burning of base transaction fees.
In the aftermath of the Shanghai upgrade, Ethereum exhibited signs of deflationary behavior, reaching a supply peak of nearly 120.534 million ETH just three weeks later.
The burn rate gained momentum in early 2023, resulting in a reduction of approximately 276,500 ETH between February 1 and June 8, underscoring the ongoing impact of the upgrade on Ethereum’s supply dynamics.
Despite a slowdown in the burn rate during the third quarter, the supply of ETH continued its decline, reaching a post-merge low of approximately 120.2 million ETH on August 31. This effectively counteracted inflation by reducing ETH supply by 307,370.
In a notable shift, the supply of Ether turned inflationary for the first time in 2023 during September and October, with around 53,700 coins added to ETH’s total supply.
However, Ethereum experienced a resurgence in on-chain activity in November, propelled by bullish market conditions. This resulted in a significant acceleration in the burn rate. The recent bullish trend has also contributed to increased DeFi volumes, with institutional funds rapidly flowing into digital asset products. This dynamic market activity further emphasizes the evolving nature of Ethereum’s supply dynamics and its responsiveness to market conditions.
Over the past 30 days, the total value locked (TVL) in DeFi platforms has seen a notable 11% surge, with Solana (SOL) leading the pack with an impressive 56% increase.
Solana has emerged as a favorite among institutional investors this year, consistently attracting record inflows even during periods when altcoin figures were at historic lows. Ethereum, the leading altcoin, has also experienced an uptick in institutional inflows in recent weeks, coinciding with its asset price breaking through the $2,000 mark.
Optimism and Avalanche have also witnessed gains in DeFi TVL, with increases of 17% and 16% respectively.
Notably, the NFT (Non-Fungible Token) market has rebounded from previous months’ declining volumes. In the last month, NFT volumes reached $0.91 billion, reflecting a remarkable 200% growth in this sector. This resurgence suggests renewed interest and activity in the NFT space.
